Hearings Offer View Into Private Banking

By JEFF GERTH

Published: November 8, 1999

WASHINGTON, Nov. 7—
In 1997, federal bank examiners were pressing executives at Citibank Private Bank to explain the source of more than $50 million deposited into a secret account controlled by the president of Gabon, Omar Bongo, bank and Senate documents show.

Existing Citibank profiles said President Bongo's wealth was created as ''a result of his position'' and ''donations'' from a French oil company doing business in the African nation, according to the documents. But a draft report by Democratic Senate investigators found that in responding to regulators, Citibank produced a new profile showing other sources of the wealth -- information the report says is inaccurate and unverified.

This week, Citibank's handling of private accounts like Mr. Bongo's will be the subject of Senate hearings. The Senate Permanent Subcommittee on Investigations is examining the vulnerability of private banking to money laundering.

In recent years, billions of dollars have left fragile economies, from Russia to Mexico, facilitated by Western bankers. The Senate hearings, whose witnesses will include Citibank executives and federal regulators, will offer the first detailed public look at one of the most secretive parts of the global financial system, private banking, in which wealthy customers are afforded extra discretion and care. The hearings come at a time when previously acceptable practices in private banking are undergoing new scrutiny.

President Bongo's account is one of several the Senate is investigating that are tied to prominent foreign political leaders or their families, in Mexico, Venezuela, Nigeria and Pakistan as well as Gabon. Citibank's private banking clients included such controversial figures as the sons of Gen. Sani Abacha, the Nigerian dictator; Raul Salinas de Gortari, the brother of Mexico's former president, and Asif Ali Zadari, the husband of former Prime Minister Benazir Bhutto of Pakistan.

In 1997, federal examiners were looking at whether Mr. Bongo's transactions should be reported as suspicious. American law bans banks from moving money earned abroad from some crimes, like drug trafficking, but not corruption. A central tenet of banking is to know your customer, and banks are required to report certain suspicious transactions to regulators.

Yet, the committee's staff report notes, ''there is currently no statutory, regulatory or industry guidance of what is adequate due diligence.''

So in 1997 the regulators felt reassured after Citibank officials told them that Mr. Bongo's transactions ''are normal for the head of state of an African country,'' according to portions of the examiners' report quoted by Senate investigators.

Mr. Bongo's profile had been revised in 1997 to say his wealth stemmed primarily from government budgeted accounts and personal oil investments in Gabon and other African countries. Senate investigators, however, found the explanations unverified and, in the first case, ''implausible and plainly contrary to Gabon's budget policy and actual spending,'' the draft report says.

Citibank documents show that bank officials were aware of news reports that Mr. Bongo was under investigation for possibly accepting bribes from French oil executives, but they were reluctant to raise those reports with Mr. Bongo or regulators, according to the draft report.

Mr. Bongo has not been charged with any wrongdoing. A spokesman for the Gabon Embassy in Washington declined to comment.

A Citibank spokesman said bank officials believed that President Bongo's wealth came from legitimate sources and that he had been ''considered a distinguished head of government, supported and embraced by U.S. presidents.''

Meanwhile, Citibank has moved to close Mr. Bongo's account, one of 40,000 at Citibank Private Bank. Citibank estimates that only 350 of the private bank's customers are public officials or their families.

The closing of Mr. Bongo's account follows moves by the bank's senior management to tighten supervision of sensitive accounts and to keep the bank from being used for improper purposes.

John Reed, the chairman and co-chief executive of Citigroup, the parent of Citibank, is expected to tell the Senate committee about Citibank's new measures against money laundering and a policy adopted last year to shy away from seeking out public figures as private bank clients, according to people familiar with his prepared testimony. He is also expected to discuss how regulators now find significant improvements in the private bank's internal controls.

The Citibank documents make clear the potential pitfalls for one of the world's most powerful and prestigious financial institutions. The Senate inquiry is such a sensitive matter for Citigroup that it hired two former senior White House lawyers, C. Boyden Gray of the Bush administration and Jane Sherburne of the Clinton administration, to help the bank prepare and respond.

One Senate investigator said Citibank had once lobbied to have a 1992 check for $1 million from Libya to a Bongo account offshore unfrozen by the United States government, contending that Citibank could lose its business in Gabon if the payment remained frozen by anti-terrorism statutes.